Understanding Montana School Finance and School District Budgets

Transcription

1 Understanding Montana School Finance and School District Budgets Montana Office of Public Instruction January 2017 For more information, contact Kara Sperle, Administrator School Finance Division Montana Office of Public Instruction (406)

2 Introduction The purpose of this booklet is to provide Montana citizens, legislators, parents, and school board trustees with a basic understanding of Montana school finance and school district budgets. It is written in a question/answer format and addresses some of the major aspects of school finance and the budgeting process. The concepts outlined in this booklet are subject to change with every legislative session and as new laws affecting school finance are enacted. Many of the topics covered in this booklet can be found at the Montana Office of Public Instruction website. In addition, more detailed information about a particular school district may be obtained by contacting the school district superintendent and/or clerk, the county superintendent of schools, the county treasurer, or the county commissioners. Meet the Staff Kara Sperle, School Finance Administrator Debbie Casey, Computer Support Specialist Paul Taylor, Budget Analyst Kathleen Wanner, Financial Specialist Nica Merala, Financial Specialist Mari Haefka, Financial Specialist Nicole Thuotte, Financial Specialist Donell Rosenthal, Pupil Transportation Director 2

3 Table of Contents Montana Constitution... 1 Commonly Used K-12 Education Acronyms... 1 Statewide Overview... 2 Organization of a School District... 4 Fund Accounting... 5 Funding and the Budget Process... 7 How to Read a Property Tax Bill Grants and Other Funding Sources Montana Constitution Article X, Section 1 of the Montana Constitution of 1972 states: (1) It is the goal of the people to establish a system of education which will develop the full educational potential of each person. Equality of educational opportunity is guaranteed to each person of the state. (2) The state recognizes the distinct and unique cultural heritage of the American Indians and is committed in its educational goals to the preservation of their cultural integrity. (3) The legislature shall provide a basic system of free quality public elementary and secondary schools. The legislature may provide such other educational institutions, public libraries, and educational programs as it deems desirable. It shall fund and distribute in an equitable manner to the school districts the state s share of the cost of the basic elementary and secondary school system. Commonly Used K-12 Education Acronyms The following list of acronyms is commonly used in K-12 education and throughout this guide: Acronym ANB ARM BASE BPE GTB MCA Meaning Average Number Belonging - The term used for the number of children in attendance in a school district Administrative Rules of Montana - Administrative rules are agency regulations, standards or statements of applicability that implement, interpret, or set law or policy. An agency can also adopt administrative rules that describe the organization, procedures or practice requirements of the agency. Agencies are given rulemaking authority through the legislative process. Base Amount for School Equity - The minimum general fund budget that all public school districts must adopt in Montana. Montana Board of Public Education The Board of Public Education was created by the Montana Constitution of 1972 to exercise general supervision over the elementary and secondary schools of the state. Guaranteed Tax Base The Guaranteed Tax Base Aid Program Is a state program that provides subsidized funding for school districts whose ratio of taxable value to students in attendance is lower than the established statewide threshold. Montana Codes Annotated - The laws of Montana 1

4 Acronym OPI TRS PIR RSBG Meaning Office of Public Instruction Teacher's Retirement System Pupil-instruction-related day is a day of teacher activities devoted to improving the quality of instruction. Related Services Block Grant Statewide Overview Q: How many public school districts does Montana have? A: For the three most recent school years, Montana had the following number of school districts: School Count FY2014 FY2015 FY2016 Elementary High School K Grand Total Q: How many students are enrolled in Montana s public schools? A: In FY there were 145,316 students enrolled in K-12 public education. This includes 145,237 students enrolled in public schools and 79 students enrolled in state funded schools (Pine Hills, Riverside, and Montana School for the Deaf and Blind). Q: How much of Montana s school funding comes from federal, state, county, and local sources? A: In Fiscal Year , schools received about 43.74% of their funding from the state, 26.71% from local property taxes, 8.94% from county sources, 8.66% from non-tax local sources, and 11.95% from federal sources. (OPI, Revenue Core File 2016) 2

5 Q: What is the total general fund budget for Montana s school districts? How much does the state fund? A: Total school general fund budgets for were about $1.073 billion. The state funded about $685 million (63.90%). Q: How much of school general funds are supported by local property taxes? A: In , local property taxes supported $308.4 million (29%) of the total school general fund budgets statewide. Q: What is the average school general fund budget per pupil in Montana? A: In , districts budgeted an average of $7,433 per pupil. Of that amount, the state support was $4,750 per pupil. Q: What portion of money from the lottery goes to Montana schools? Are lottery funds still earmarked for education? A: Lottery money is no longer earmarked for education, but it is one funding source used for education. In 1986, the Montana State Lottery Act passed by 69% of the popular vote. Under that Act, the lottery profits were used to fund the Teachers Retirement System in order to hold the line on, or reduce, property taxes. In 1989, the Legislature allocated lottery profits to state equalization aid for schools. In 1991, the Legislature allocated lottery profits to the state s general fund. In the state general fund, the lottery profits are combined with many other state resources used to fund a variety of state programs. Other more significant revenues that fund the state general fund include state income taxes, property taxes, and coal trust interest earnings. Based on FY 2016, approximately 0.6% of the state general fund money came from lottery profits. In FY2016, the total general fund revenue was about $2.1 billion, and lottery profits brought in about $12 million, or 0.6% (six tenths of one percent). About $781 million of the state general fund is used for school funding purposes annually. The Teachers Retirement system benefits school teachers in Montana, who pay 8.15% of their salaries into the system. School district employers contribute 8.67% and the state pays 2.48%. Q: What are school trust lands? A: Under the Enabling Act that granted Montana its statehood in 1889, the federal government ceded 5.2 million acres of land across Montana for common school support. The State Board of Land Commissioners has the authority to direct, control, lease, exchange, and sell school lands and lands which have been or may be granted for the support and benefit of the various state educational institutions. Income and interest earnings from school trust lands are set aside in a Guarantee Account and statutorily appropriated to fund K-12 BASE aid. The Legislature builds these school trust funds into its 3

6 revenue estimates for schools. If income and interest earnings from the school trust lands exceed an annual amount in excess of $56 million, and the total excess interest and income revenue exceeds one million, 50% must be reserved for an appropriation in the next regular session as part of the natural resource development payment and 50% must be distributed to schools on a per quality-educator basis. Revenue from the sale of timber on Common Schools land and income received from certain lands and riverbeds, are deposited in the School Facility and Technology Account, which was established to provide money to schools for facilities and technology improvements. Q: How much is raised by the county equalization (55) and statewide equalization (40) mills? A: In FY , the county equalization mills raised $143 million and the statewide equalization mills raised $103 million. Applicable Montana Codes and Administrative Rules Accounting: /376, , MCA Budgeting: /168, , MCA County Information: (6), , , MCA Election Information: , /312, /417, , MCA Student ANB Count: , , /4, , (1) MCA Impact Aid: , MCA Pupil Transportation: thru MCA, ARM Tuition/Attendance: /111, /324, (2) MCA, ARM Organization of a School District Each school district is governed by a board of trustees who are ultimately responsible for every action of the school district. The trustees are elected officials and, as a board, must carry out their duties according to the Montana Constitution, the laws of Montana, and the Administrative Rules of Montana of the Board of Public Education (BPE) and other pertinent state agencies, such as the Office of Public Instruction (OPI). The trustees typically hire a district superintendent and school clerk to assist with the general supervision and fiscal responsibilities of the school district. The trustees also work with the county superintendent of schools, county commissioners, and county treasurer. Q: Why does the board of trustees control the school district? A: Article X, Section 8 of the Montana Constitution establishes local control of a school district: The supervision and control of schools in each school district shall be vested in a board of trustees to be elected as provided by law. Q: When are school district trustees elected? A: Trustee elections take place on the regular school Election Day, which is the first Tuesday after the first Monday in May. Q: How many members are on the board of trustees? 4

7 A: The number of trustees on the board depends on the population within school district boundaries. Typically, small school districts have three trustees; large school districts have seven trustees. See and , MCA for specific information. Q: How long do the trustees serve on the board? A: Trustees are elected for three-year terms. Q: Are trustees paid for their positions? A: No, the trustees of a school district do not receive compensation for their services as trustees. Q: What are the powers and duties of the trustees of each district? A: The trustees are ultimately responsible for every aspect of the school district. The trustees make policy, adopt and administer the annual budget, approve expenditures, make required reports to various agencies, establish elections, and enforce the requirements for government of the school district according to state law and the Administrative Rules of the BPE and the OPI. A detailed list of these duties is found in , MCA. Q: Does an individual board member have any authority in the operation of a school district? A: No board member, including the chairperson, has authority as an individual in the operation of a school or school district. The only authority an individual has is as a member of the board when acting as part of a collective unit in a regular or properly called special meeting. Q: What is the role of the district superintendent? A: The superintendent is responsible for the general supervision of all the schools of the district and for implementing and administering the policies of the board of trustees. In very small schools that do not hire a district superintendent, the county superintendent of schools fulfills this role. Q: What is the role of the district clerk? A: By law, the trustees must employ and appoint a clerk of the district. The district clerk is the custodian of all documents, records and reports of the trustees. Most clerks are also employed to perform accounting and financial reporting functions for the school district. Q: What is the role of the county superintendent of schools? A: The county superintendent provides general supervision of the schools located in the county as outlined in and , MCA. Other duties found in state law include chairing the county transportation committee, acting as attendance officer for a third-class school district, if one is not appointed, being clerk of a joint board of trustees, and assisting trustees with school supervision if a district superintendent or principal is not employed there. Fund Accounting School district accounting systems are organized and established on a fund basis. A fund is a self-balancing set of accounts used to track the fiscal activity for a specific purpose or activity. Each fund must be accounted for separately so that its resources, obligations, revenue, and expenditures are kept apart from other funds. Legal reference to fund accounting for schools can be found at , MCA. 5

8 Q: What types of funds are used by school districts? Governmental Funds Most school district functions are financed through four types of governmental funds: General, Special Revenue, Capital Projects, and Debt Service. These funds are classified as either budgeted or non-budgeted funds. Proprietary Funds The two types of proprietary funds, Enterprise and Internal Service, are used to account for a school district s ongoing organizations and business-type activities that are similar to those found in the private sector. Proprietary funds are non-budgeted funds. Fiduciary Funds The two types of fiduciary funds, Trust and Agency, are used to account for assets held by a school district in a trustee capacity or as an agent for another entity or fund. Fiduciary funds are non-budgeted funds. Q: What are budgeted funds? A: A budgeted fund means any fund for which a budget must be officially adopted by the board of trustees in order to expend money from the fund (2)(a), MCA Budgeted funds include: General Fund Building Reserve Fund Transportation Fund Adult Education Fund Bus Depreciation Reserve Fund Non-operating Fund Tuition Fund Technology Fund Retirement Fund Flexibility Fund Debt Service Fund Q: What are non-budgeted funds? A: A non-budgeted fund is any fund for which an official budget is not required to be adopted in order to expend money on deposit in the fund, (2)(b), MCA. Expenditures from these funds are limited to the amount of cash balance in the fund. Non-budgeted funds include: School Food Services Fund Impact Aid Fund Miscellaneous Programs Fund Enterprise Fund Building Fund Agency Fund Lease or Rental Agreement Fund Extracurricular Fund Traffic Education Fund Endowment Fund Q: What are district accounting codes? A: By law, each district must use the accounting codes designated by the OPI. This ensures continuity and uniformity across the state. The OPI uses accounting codes suggested by the U.S. Department of Education. Q: What are the different components of an expenditure accounting code? A: District clerks pay bills using expenditure codes that identify the payment. For example, an expenditure code might look like this: An expenditure code is made up of five different parts. They are: XXX XXX XXXX XXX XXX 6

9 Fund code - Program code - Function code - Object code - Project Reporter code Fund code (General Fund, Transportation Fund, etc.) Program code (regular programs, special Education programs, etc.) Function code (instruction, student support Services, etc.) Object code (salaries, supplies, utilities, etc.) Project Reporter code (code for district s separate accounting of projects) A detailed description and list of codes is found in the School Accounting Manual at: Q: Are school districts audited? A: Yes. In the 2007 legislative session, HB 487 was passed and changed the audit threshold from $200,000 to $500,000. Beginning in FY , districts with $500,000 or more of revenue would receive a basic audit, and districts with less than $500,000 of revenue must have a financial review at least once every four years. Federal law requires districts that expend $500,000 of federal money in FY14-15 must have a more comprehensive audit in accordance with federal audit guidelines. The limit increased from $500,000 to $750,000 in FY16. Funding and the Budget Process Most discussion about Montana school budgets and the budget process concentrates on the general fund. The general fund budget is used to finance instructional, administrative, facility maintenance, and other operational costs of a district not financed by other funds established for special purposes. In an effort to equalize school funding in Montana, state law requires schools to adopt general fund budgets within an equalized range between the BASE and Maximum. A district can adopt the current year maximum or the previous year s adopted budget plus increases in the Quality Educator Payment, Indian Education for All Payment, At-Risk Student Payment, and the American Indian Achievement Gap Payment. SB 175, passed in the 2013 regular session, added the Data for Achievement Payment and increases In the Direct State Aid (DSA) for the Per-ANB and Basic Entitlements. Other funds are established for special purposes, such as pupil transportation, tuition and debt service. A budget must be adopted for each of these funds in the manner provided for in state law. Q: What is the history of the current school funding system? A: In 1985, a coalition of 64 school districts filed a lawsuit in Helena District Court claiming that the funding of the education system in Montana, guaranteed under the Montana Constitution, was unconstitutional. On January 13, 1988, the Loble Decision was handed down. This decision, which was challenged by the state of Montana and subsequently upheld by the Montana Supreme Court, confirmed that the State of Montana:... Has failed to provide a system of quality public education granting to each student the equality of education opportunity guaranteed under Article X, Section I of Montana s Constitution. In June of 1989, a special session was called to address the problem. During that session, HB 28 was passed in an attempt to solve the equity problem. HB 28 increased funding and instituted a Guaranteed Tax Base System (a mechanism designed to assist low wealth districts by subsidizing their tax base through state assistance). However, the under-funded coalition did not feel that this solved the equity problem and the funding disparity issue ended up back in District Court. The result was two additional equity lawsuits filed in Subsequent legislative action passed by HB 667 established 7

10 the current method of school funding for all public school districts in the state. It established a formula that created maximum and minimum general fund budget levels for all school districts. Each school district was required to be within that range on or before SB 460 (1999 session) and SB 390 (2001 session) expanded the capacity of districts to adopt budgets that exceed the Maximum level. In April 2004, the Sherlock decision in Columbia Falls v. Montana found the state share of school district spending inadequate and found that Montana s funding formula is not reasonably related to the costs of providing a basic system of free quality public elementary and secondary schools. The state appealed the decision to the Montana Supreme Court and the Court upheld the Sherlock decision. The 2005 Legislature adopted a definition of a quality education and appointed a committee to study the formula and propose changes that would align it with the new definition. Also, schools received additional funding for FY 2007 from several new funding components, some which expanded the district general fund and some which were deposited as One- Time-Only payments (OTO) in the district miscellaneous programs fund. The 2007 legislative session provided additional funding which further expanded the district general fund and state OTO payments in the miscellaneous programs fund. In the 2009 legislative session, federal funds allocated to Montana in the American Recovery and Reinvestment Act (ARRA) were appropriated to support K-12 BASE aid in the district general fund and for federal grants to school districts for existing programs administered by the U.S. Department of Education in the miscellaneous programs fund. School districts and special education cooperatives received state OTO payments in the miscellaneous programs fund in support of deferred maintenance and energy efficiency expenditures. In the 2011 legislative session, the Pathway to Excellence Program was established to promote educational excellence in Montana's public schools through data-driven decision making and to maintain a focus on continuous improvement and increased academic achievement for public school students. The session also authorized the creation of multidistrict cooperatives, in addition to establishing new mechanisms for the distribution of oil and natural gas production taxes. In the 2013 legislative session, SB 175 redesigned the Basic Entitlement to provide additional resources for larger school districts. A new general fund budget component, the Data for Achievement (D4A) payment, was added. The Natural Resource Development Funding (NRD) payment was established to provide a payment to each district in proportion to the district's direct state aid and to reduce local property taxes in support of general funds. Oil and gas production taxes were required to be remitted to the state when amounts exceeded thresholds of budget authority, and amounts were redistributed among districts with oil and natural gas production within their boundaries or which border on districts with the revenues. In some cases, depending on the size of district budgets, oil and gas revenues were not required to be anticipated to fund the general fund and could instead be redirected to the general fund from other budgeted funds to make up revenue shortfalls. In general funds, districts were allowed to transfer unused levy authority from other budgeted funds to the Flexible Nonvoted Levy for the general fund over-base. The law established a third annual enrollment for determining funding. Schools gained authority to establish voted revenue bonds to be repaid using oil and gas production taxes. In the 2015 legislative session, HB 87 amends MCA to eliminate the official enrollment count in December that was instituted in SB 175 (2013 session). HB 114 requires school districts that receives a remittance from a tax increment financing districts to use the remittance to reduce property taxes or to fund the general fund operating reserve. HB 373 provides for the bonding capacity of a school district to be the greater of 100 percent of the district s taxable valuation (200 percent for K-12 districts) or the amount determined by applying the facility guaranteed mill value. SB 252 amends MCA to allow a school district to deposit its oil and natural gas production tax revenues in any budgeted fund of the 8

11 district. If a district allocates an amount to its BASE budget that is less than 12.5 percent of its prior year receipts of oil and natural gas production taxes, the district must levy permissive mills to make up the difference between 12.5 percent of its prior year receipts and the amount allocated to its BASE budget. This portion of the BASE levy will not be matched by guaranteed tax base aid. SB 260 eliminates the concentric circles funding mechanism effective July 1, Any monies deposited in the state school oil and natural gas distribution account will be distributed to school districts that are directly impacted by oil and natural gas development but that receive insufficient oil and natural gas production taxes to address the impacts. SB 410 created two new tax credits: 1) donations to a new educational improvement special revenue account for distribution to school districts for the purpose of funding innovative educational programs and technology deficiencies in public schools and 2) donations to organizations that would give scholarships to students in private schools. Q: How are BASE (minimum) and Maximum general fund budget levels calculated? A: Budget levels are calculated based on state entitlements, driven by enrollment, number of educators and licensed professionals, and number of American Indian students. The basic and per-anb entitlements, Quality Educator, Indian Education for All, American Indian Achievement Gap, At-Risk Student and Data for Achievement components, along with the district s special education funding, define BASE (minimum) and Maximum general fund budget limits. Q: What is ANB? A: In October and February of each school year, school districts report the number of students enrolled in their schools to the OPI. From these counts, ANB is calculated. ANB is then used to calculate the per-student entitlement, special education funding, Indian Education for All, and the Data for Achievement payment these, together with the basic entitlement, At- Risk Student payment, and the Quality Educator payment, make up the BASE (minimum) and Maximum general fund budget levels for the following school year. A school district is allowed to use current year ANB or 3-year average ANB for each budget unit by level (elementary or high school), whichever generates the greatest Maximum general fund budget. Current year ANB is the ANB for the budget unit for the ensuing school fiscal year. 3-year average ANB means an average of ANB over the most recent 3-year period, calculated by adding the current year ANB to the current ANB for each of the previous two school fiscal years, dividing the sum by 3, and rounding up to the next whole number. Q: What is the basic entitlement? 9

12 A: The basic entitlement is the minimum funding each school district will receive if in operation. The formula for calculating basic entitlement changed in the 2013 legislative session. For FY , elementary districts without an accredited 7th-8th grade program received $50,000 for the first 250 students, plus an additional $$2,500 for every 25 ANB over 250. A school district with an accredited 7th-8th grade program received $50,000 for the K-6 elementary program plus an additional $2,500 for every 25 ANB over 250 and $100,000 for the 7th-8th grade program, plus $5,000 for every 45 ANB over 450. High school districts received $300,000 plus $15,000 for every additional 80 ANB over 800. Q: What is the per-anb entitlement? A: Per-ANB entitlement (also known as per-student entitlement) varies based on the total number of ANB in the school district. The per-anb entitlement rates are determined by the Legislature. Rates shown below are effective for FY Elementary districts have a per-anb entitlement of $5,348. This rate is decreased by $.20 per ANB for each additional elementary ANB up to 1,000 ANB. The per-anb entitlement is $5, for each ANB over 1,000. High school districts have a per-anb entitlement of $6,847. This rate is decreased by $.50 per ANB for each additional high school ANB up to 800 ANB. The per-anb entitlement is $6, for each ANB over 800. Elementary districts, or the elementary program of a K-12 district, with an accredited 7th-8th grade program, receive the elementary rate for students in grades K-6 and the high school rate for students in grade Q: What other General Fund payments exist? A: In the 2005 special legislative session four new components were added to the General Fund: Quality Educator, At- Risk Student, Indian Education for All, and American Indian Achievement Gap. The 2013 legislative session added an additional component, the Data for Achievement component. Calculations of these components are: Quality Educator - Each district and special education cooperative will receive a $3,113 payment in FY for each full-time equivalent licensed educator and for other licensed professionals employed by the school district, including registered nurses, licensed practical nurses, physical therapists, speech language professionals, psychologists, licensed social workers, counselors, occupational therapists, and nutritionists. At-Risk Student - The At-Risk Student payment is intended to address the needs of at-risk students, and the money is distributed in the same manner as Title I monies are distributed to schools. For FY the Legislature appropriated $5.27M. Indian Education for All - Each district receives an Indian Education for All payment to implement the provisions of the Montana constitution (Article X, section 1(2) and the statutory requirements for the recognition of American Indian cultural heritage ( , MCA). The Indian Education for All payment is the greater of $100 for each district or $20.88 per ANB. American Indian Achievement Gap - A school district receives a payment of $205 for each American Indian student enrolled in the district. Data for Achievement - Beginning in FY , the payment is equal to $20 per budgeted ANB. Q: How does the state fund special education? A: OPI distributes state funding for special education in three categories: 1. Instructional Block Grant (IBG) and Related Services Block Grant (RSBG) These block grants are based on the ANB of a district. The money is spent on allowable special education costs as defined in , MCA. The district must spend $1 of local money for every $3 received from each block grant. If a school district is a member of a special education cooperative, the state pays the district s RSBG directly to the cooperative. 2. Reimbursement (40%) for Disproportionate Costs Districts with unusually high special education costs may be eligible for additional special education reimbursements. 3. Additional administrative/travel funding for special education cooperatives. 10

13 Q: What is a special education cooperative? A: Special education costs often involve the services of specialists, such as speech or physical therapists and psychologists. Large school districts are often able to pay for these special services through their own programs. However, smaller districts may not have adequate resources to run a special education program. The result is that small- and midsized school districts usually pool their resources by forming a cooperative to maximize their special education services. Q: What is the BASE budget? A: The BASE budget is the minimum budget that a district must adopt for its general fund. It is equal to 80% of the basic entitlement, 80% of the district s per-anb entitlement, 100% of the Quality Educator payment, 100% of the At-Risk Student payment, 100% of the Indian Education for All payment, 100% of the American Indian Achievement Gap payment, 100% of the Data for Achievement payment, 140% of the district s special education allowable cost payment, and 40% of the district s prorated special education cooperative cost payment. BASE 80% Per-ANB Entitlement 80% Basic Entitlement 100% Quality Educator Payment 100% At-Risk Student Payment 100% Indian Education for All Payment 100% American Indian Achievement Gap Payment 100% Data for Achievement Payment Special Ed Allowable Cost Funding (State) If not in co-op, includes Related Services Block Grant - 40% X [Special Ed Allowable Cost Funding PLUS Prorated Co-Op Payment] (Local) Maximum 100% Per-ANB Entitlement 100% Basic Entitlement 100% Quality Educator Payment 100% At-Risk Student Payment 100% Indian Education for All Payment 100% American Indian Achievement Gap Payment 100% Data for Achievement Payment Special Ed Allowable Cost Funding (State) If not in co-op, includes Related Services Block Grant - 75% to 100% X [Special Ed Allowable Cost Funding PLUS Prorated Co-Op Payment] (Local) Q: What is the Maximum budget? A: The Maximum general fund budget is the sum of 100% of the district s basic entitlement, 100% of the district s per- ANB entitlement, 100% of the Quality Educator payment, 100% of the At-Risk Student payment, 100% of the Indian Education for All payment, 100% of the American Indian Achievement Gap payment, 100% of the Data for Achievement component, between 175% and 200% of its special education allowable cost payment, and between 75% and 100% of the district s prorated special education cooperative cost payment. Q: What if a district s current budget is between the BASE and Maximum levels? A: The district s budget is equalized if it's between the BASE and Maximum levels. This is what the court intended in its decision on equitable funding. 11

14 Q: What is a disequalized district? A: A district is disequalized if its budget is over the Maximum. Districts must obtain voter approval to adopt a budget over the Maximum. A district can adopt up to the amount of the prior year adopted budget plus the highest over-base levy authorized or imposed in the past five years and if it needs an increase in the over BASE levy to do so. A district may adopt a budget that exceeds the Maximum in limited cases. In an effort to equalize school funding in Montana, state law encourages schools to adopt general fund budgets within an "equalized" budget which means the budget is in the range between the BASE and MAXIMUM. Q: How does a district determine how to budget in the general fund? A: Districts can adopt the higher of the Maximum budget or the adjusted prior year adopted budget. Districts may be required to seek voter approval to attain these budget levels. In no case can any district budget below the minimum BASE level. Q: What is the adjusted prior year adopted budget? The adjusted prior year adopted budget is calculated as follows: Prior year adopted budget amount + any increases in the following general fund components: ± Quality Educator ± At-Risk Student ± Indian Education for All ± American Indian Achievement Gap ± Data for Achievement + any increases in direct state aid for the following: ± Basic entitlement ± Per ANB entitlement + Full-time kindergarten transition amount = ADJUSTED PRIOR YEAR ADOPTED BUDGET Q: How does a district fund its general fund budget? A: A district may fund its general fund budget from the following sources: 1. Direct State Aid equal to 44.7% of the district s basic and per-anb entitlements. 2. Special Education Allowable Cost payments from the state that are paid directly to the district. 3. Non-levy revenue and fund balance reappropriated. 4. Non-voted local levies subsidized with Guaranteed Tax Base (GTB) aid to fund 35.3% of its basic and per-anb entitlement and 40% of its special education allowable cost payment, including RSBG paid directly to cooperatives. 5. Voted and non-voted local levies with no GTB aid for that portion of the general fund budget that exceeds the BASE budget. Q: How is the BASE budget funded? A: The BASE budget is funded as follows: 1. Direct State Aid: 12

15 ± 44.7% of the district s basic entitlement ± 44.7% of the district s per-anb entitlement 2. Special Education Allowable Cost Payment: ± Instructional Services Grant ± Related Services Block Grant (if the district is not in a cooperative) ± Reimbursement for disproportionate costs (explained above) 3. BASE Mill Levy (includes GTB aid for qualifying districts): ± 35.3% of the basic entitlement ± 35.3% of the per-anb entitlement ± 40% of the state special education allowable cost payment % Quality Educator Payment ± 100% At- Risk Student Payment ± 100% Indian Education for All Payment ± 100% American Indian Achievement Gap Payment ± 100% Data for Achievement Payment Funding the BASE Budget Max Base Local Mills 35.3 % Local Mills Guaranteed Tax Base Aid Fund Balance Reappropriated Non-Levy Revenue 44.7 % Direct State Aid Quality Educator At-Risk Student Indian Ed for All American Indian achievement Gap Data for Achievement Q: How is the BASE Mill Levy calculated? A: The BASE Mill Levy is a local permissive (non-voted) tax levy. It is calculated by taking the BASE budget and subtracting all non-tax revenue sources that will be available to the district, including state funding, non-levy revenues such as oil and gas production revenues, and fund balance that can be reappropriated to fund the BASE budget next year. The remainder of the BASE must be funded with the BASE mill levy. The state subsidizes the BASE mill levy through GTB aid for districts that qualify. Q: What is GTB aid, and how does a school district qualify to receive it? A: GTB means Guaranteed Tax Base. GTB aid is a state subsidy for BASE mills. It is used to equalize propertygenerated wealth across the state. This is the state revenue source that helps school districts reach the minimum (BASE) 13

16 funding level. If a district s taxable value compared to the locally funded part of the BASE budget is below the comparable statewide ratio, the district will receive GTB aid to assist in funding up to the BASE budget level. Q: Does Montana have a true Guaranteed Tax Base system? A: Although we use the term GTB and refer to our current system of funding as a guaranteed tax base system, we do not actually have a true GTB system. Under a true GTB system, the tax base level is guaranteed and each levied mill supplies the same amount per student in any given district. Montana s program is actually a guaranteed tax yield system that provides state assistance in order to obtain at least a minimum amount of funding per mill for each student. Q: How is the statewide GTB ratio figured for the elementary or high school? A: The statewide taxable valuation is multiplied by 193%. This is then divided by the locally funded portion of BASE budgets, which includes 35.3% of the basic and per-anb entitlements and 40% of the total special education allowable costs payments for all schools statewide. Statewide Taxable Valuation x 193% State GTB Ratio = 35.3% of Basic Entitlement % of per-anb Entitlement + 40% Special Education not the same as the calculation for GTB ratio. Why? There is a District GBT ratio & a Statewide GTB ratio. The districts GTB = districts PY TV (with exclusions) divided by districts PY GTBA budget area The statewide GBT = statewide PY TV times 193% divided by statewide GTBA budget area (calculated for EL & HS) Q: How is the local district GTB ratio figured? A: According to statute ( (2)(a), MCA), GTB ratios for the upcoming school year are calculated using the district s prior year taxable value, entitlements, and special education funding. Q: What is Fund Balance Reappropriated? A: At the end of the fiscal year (June 30), most districts still have cash on hand. After considering any unpaid obligations, the remainder is referred to as Fund Balance. School districts are allowed to set aside, or reserve, some or all of their fund balance in order to continue operation of the school district until funding is received from the state and property taxes. Fund Balance Reappropriated is the difference between the end-of-year fund balance and the amount reserved for operations. It must be used to fund the next year s budget. In 2011, the legislature limited the amount of fund balance that may be appropriated to 15% of the maximum general fund budget. Excess funds must be remitted to the state guarantee account (70%) and state school facility account (30%). Q: How much fund balance is a district allowed to reserve for operations? A: By law a district cannot carry over more than $10,000 or 10% of the upcoming school year budget of the general fund (whichever is greater). Reserve limits have also been established for some of the other budgeted funds (Transportation Fund 20%, Retirement Fund 20%, and Adult Education Fund 35%). Q: What is non-levy revenue? A: School districts receive revenues from other sources in addition to those levied on property. Some examples are: Interest earnings Coal gross proceeds tax Rental of buildings and equipment Property tax reimbursements Summer school revenues Montana oil and gas tax School Block Grant Tuition 14

17 Q: Are school districts required to budget non-levy revenue sources? A: Section , MCA, says that school districts must budget in the current year the same amount of non-levy revenue as actually received in the prior year in the general fund. Non-levy revenues that must be anticipated include: Interest earnings and other non-levy revenue received in the previous year Coal gross proceeds School block grants SB 252 of the 2015 legislative session made significant changes in the requirements for estimating anticipated oil and gas production tax. SB 252 amends , MCA, to allow a school district to deposit its oil and natural gas production tax revenues in any budgeted fund of the district. If a district allocates an amount to its BASE budget that is less than 12.5 percent of its prior year receipts of oil and natural gas production taxes, the district must levy permissive mills to make up the difference between 12.5 percent of its prior year receipts and the amount allocated to its BASE budget. This portion of the BASE levy will not be matched by guaranteed tax base aid. Q: What is the Over-BASE budget? A: If a district adopts a budget over the BASE (minimum) budget, that amount of budget is called the over-base budget. The over-base budget of an equalized district would be, at most, the amount of budget between the BASE and Maximum. That difference would be equal to 20% of the basic entitlement, 20% of the per-anb entitlement and between 35% and 60% of state special education funding. Q: How is the Over-BASE budget funded? A: The over-base budget, including any amount of budget that exceeds the Maximum, is funded using a local over- BASE tax levy and a flexible non-voted levy, if needed. The state does not help finance these mill levies. Some districts receive tuition and other non-levy revenues that help fund this part of the budget. Q: What happens if a district s budget is over the Maximum level? A: Any budget over the Maximum is disequalized. The district may adopt a budget over the Maximum up to the amount of the prior year adopted budget plus the highest over- BASE levy authorized or imposed in the past five years. A flexible non-voted levy may also be imposed. Q: What is a Flexible Non-voted Levy? A. Beginning in fiscal year 2013, districts may increase the over-base budget levy without a vote if non-voted property tax levies are reduced by at least that much in other budgeted funds. The funds that would reduce their levies would be the tuition, adult education, bus depreciation, and transportation funds. The ongoing authority for any non-voted increase in the over-base budget levy must be reduced in future years to the extent that non-voted levies increase in the other funds. Q: What happens if enrollment decreases from the prior year? A: Montana laws provide a three-year averaging of enrollment to flatten the effects of enrollment decreases on funding. If ANB decreases from the prior year, the BASE and Maximum budget levels will usually decrease for the year. Q: Does a district have to lower its budget if enrollment drops? 14

18 A: If the district needs an increase in the prior year over-base levy to maintain its prior year budget level and voters do not approve the increase, the district would have to lower its budget. In some cases, districts may be able to use the Flexible Non-voted Levy to avoid reducing the budget. Q: How does a district get the required voter approval for an over-base tax increase? A: To obtain voter approval for an over-base tax increase, the trustees adopt a resolution calling for an election. Budget elections are held on the regular school election day (the first Tuesday following the first Monday in May). School districts may conduct the election on a date other than the regular school election day in years the legislature meets and passes laws that affect school funding. Q: How do voters know how much the voted tax increase will be? A: State law requires that certain information be contained in the ballot language, Including the total amount of the tax increase, the approximate number of mills and an estimate of the increase in the taxes on homes with market values of $100,000 and $200,000. Q: What happens if a budget election fails? A: If voters do not approve the increase, the school district may adopt a budget that is no greater than its highest budget without a vote. For an equalized district, the over-base levy can be no more than the highest over-base levy authorized or imposed in the past five years, plus any Flexible Non-voted Levy authority transferred to the general fund. Q: How does the board of trustees set the budget of the school district? A: Generally, the superintendent makes recommendations to the board about the budget. However, the trustees set the official budget for the operation of a district. The adoption of a budget is done at a meeting, or series of meetings, open to the public. Any taxpayer in the district may be heard with regard to the budget, or to any item or amount proposed in the budget. Q: Do the trustees call for a mill levy election prior to the adoption of a budget or after it is adopted? A: The trustees have preliminary budget figures for use in considering a resolution to call for a levy election. Elections must be held in May, or at a later date in legislative years. The trustees can adopt the final budget no later than August 15, but must have obtained voter approval before taking actions that require a vote. Q: When is the final budget prepared? A: The board of trustees must adopt a final budget no later than August 25th. Within three days after final approval, the adopted budget is delivered to the county superintendent, to be placed before the county commissioners , MCA Q: What is the county commissioners' role in the school district budget process? A: Although the trustees control the budget process in a school district, the county commissioners actually levy the required mills for the final budget. The commissioners cannot alter the budget, but they can send it back to the trustees if there is insufficient revenue to fund the budget. By law, commissioners set the mill levies by the later of the first Thursday in September, or within 30 calendar days after receiving certified taxable values , MCA Q: Does a district have to spend all the money budgeted in a school year? 15

19 A: No law forces a district to spend what is budgeted and raised through the various revenue sources. However, the amount carried over from one fiscal year to another (the fund balance reappropriated) must offset local non-voted revenue, and the amount of fund balance that may be reappropriated is limited to 15% of the maximum general fund budget. Any excess over the limit must be reverted to the state. Q: What is the budget process for the other budgeted funds? A: The process for the other budgeted funds is similar to the general fund. Since these funds are established for specific purposes, the types of expenditures and revenue sources are varied. Tax levies in the Transportation, Bus Depreciation, Tuition, and Adult Education are non-voted (permissive). Voter approval is required for tax levies in the Debt Service, Building Reserve, Technology and Flexibility funds. Q: What is the purpose of the Transportation Fund? A: The Transportation Fund is used to pay for the costs of getting students from home to school and back. This can include the purchase of buses, building a bus barn, bus maintenance, bus driver salaries and benefits, hiring a private contractor to run the transportation program, and transportation reimbursement contracts. The state and county share in funding on-schedule costs based on bus routes and mileage contracts with parents. Additional funding is provided through fund balance reappropriated, non-levy revenues and a non-voted district transportation fund levy. Q: What is the purpose of the Bus Depreciation Fund? A: The Bus Depreciation Fund is used to accumulate funds for bus replacement and additional school buses. Revenue may come from fund balance reappropriated, non-levy revenues, and a non-voted district tax levy. Q: What is the purpose of the Tuition Fund? A: The Tuition Fund is used in limited cases to pay tuition for a student who attends school outside the student's district of residence. Students may be attending under mandatory or discretionary agreements paid by the resident school district. Rates are set under , MCA based on 20% of the per-anb entitlement for the year of attendance. Special education add-on rates are calculated under ARM SB 191, passed in the 2013 legislative session also allows districts to pay for the cost of implementing a resident student's Individualized Education Program (IEP) Funding sources are fund balance reappropriated; direct state aid (for out-of-state tuition), non-levy revenue, and a non-voted district tax levy. Q: What is the purpose of the Retirement Fund? A: The Retirement Fund is used to pay the school district s share of specific employer contributions, including social security and Medicare taxes, Teachers Retirement System (TRS) and Public Employees Retirement System (PERS) contributions, and state unemployment insurance. It is funded by a countywide retirement levy. Senate Bill 424, enacted by the 2003 Montana Legislature and signed into law by the Governor, requires school districts to use federal funds for employer contributions to the retirement, federal social security, and unemployment insurance systems for all employees whose salaries are paid from a federal funding source, excluding Impact Aid and employees paid from the Food Service Fund. Q: What is the purpose of the Debt Service Fund? A: The Debt Service Fund is used to budget and pay for a school district s bond debt, including principal and interest payments and agent fees, and/or special improvement district payments (SIDs). State equalization aid (known as state reimbursement for school facilities) is available to school districts that have a district mill value per ANB that is less than 16